A "Too Small To Matter" Greece Once Again Requests More Money

Tyler Durden's picture

By now it should be painfully clear to involved that the Greek economy is nothing but a zombie, whose funding shortfalls and other deficit needs are sustained each month only courtesy of constantly new and improved "financial engineering" ponzi creations out of the ECB, the ELA, and other interlinked funding mechanisms which are merely a transfer of German cash into empty peripheral coffers. And while the attention of the world has moved on, at least for the time being, from the small country which has been left for dead with the assumption that Europe will do the bare minimum to keep it alive, but not more, Greece once again reminds us that not only does it still pretend to be alive, but that the zombie is getting hungry, and want to eat.

The latest news out of Athens is that ahead of the Samaras’ meeting with Juncker tomorrow and Merkel on Friday, the Troika is said to have found that Greece’s funding shortfall could be as high as EUR14bn, or 20% more than previously "agreed upon."

Spiegel reports:

Athens has not been having an easy time coming up with the €11.5 billion in cost cutting measures over the next two years it has promised Europe. Indeed, Greek Prime Minister Antonis Samaras is reportedly set to request an additional two years to make those cuts during meetings later this week with German Chancellor Angela Merkel on Friday and French President François Hollande on Saturday.

 

But according to information obtained by SPIEGEL, the financing gap his country faces could be even greater. During its recent fact-finding trip to Athens, the so-called troika -- made up of representatives from the European Central Bank, the European Commission and the International Monetary Fund -- found that Greece will have to come up with as much as €14 billion to meet the terms for international aid.

 

According to a preliminary troika report, the additional shortfalls are the result of lower than expected tax revenues due to the country's ongoing recession as well as a privatization program which has not lived up to expectations. The troika plans to calculate the exact size of the shortfall when it returns to Athens at the beginning of next month.

 

The news of the potentially greater financing needs comes at a sensitive time for the country. Many in Europe, particularly in Germany, are losing their patience and there has been increased talk of the country leaving the common currency zone. Over the weekend, German Finance Minister Wolfgang Schäuble reiterated his skepticism of additional aid to Greece. "We can't put together yet another program," he said on Saturday, adding that it was irresponsible to "throw money into a bottomless pit."

This was confirmed by Kathimerini which said that Greece is preparing a plan for €13.5bn cut instead of the €11.5 billion demanded by the troika. This is because the Finance Ministry has calculated that once the pension and salary cuts are implemented along with the reductions to spending, tax revenues and social security contributions will fall by about 2 billion euros, leading to a new shortfall said the article DB summarizes. Elsewhere Germany's foreign minister Guido Westerwelle said that the German government is convinced "no substantial softening of the agreement" with Greece is possible.

So will Europe continue on its merry way, pretending Greece does not exit, as evey month the insolvent country takes out of a few extra billion from the piggybank (thank you Dzyrmany), or will Europe finally admit reality, and sever ties with the Greek monetary black hole, as so many Germans now openly want? Citi's Stephen Englander explains under what conditions the latter might happen.

Linking ECB bond buying to Greek exit

An article in Der Spiegel over the weekend discussed a potential ECB intervention to cap peripheral bond yields. A more recent report sent out overnight shifted gears in addressing how the Eurozone prevents contagion in the event of a Greek exit. Dealing with Greek exit could be the more pressing Eurozone issue, because contagion has to be stopped on the spot if Greece leaves, or tremendous damage will be done.  A couple of months of excess financing costs are not pleasant, but are not fatal either, as German policymakers have been at pains to point out. Several clients have suggested as well that the ECB bond buying discussion may be more motivated by Greece than by Spain, even if it could be justified by either.

The article raises three possibilities for dealing with Greek exit: 1) unlimited ECB buying, 2) an ESM banking license, and 3) Eurobonds.  The argument is that if Greece is exiting you need an unbeatable policy recipe to prevent contagion or else you end up with the kind of financial market panic that the US did when Lehman’s went bankrupt without adequate policy preparation for dealing with the aftermath. Nevertheless, as the article notes, each policy has side effects and can affect incentives in an undesirable way. The big bazooka metaphor is wrong – the battle is not won by the biggest bazooka, but by the one that has unlimited ammunition.

The open questions are:

  1. Would the Europeans let Greece exit without the type of safety net discussed above?
  2. Is there a way they can keep Greece in without other countries lining up for similar treatment, leaving Stability and Growth Pact –II where SGP-I ended?
  3. If they had to choose between the ECB, ESM and Eurobonds, which would allow the most conditionality and least distortion of incentives?
  4. How would the euro react?

It seems to me that i) would be unambiguously and harshly negative for the euro, because the risk of contagion is enormous if depositors in other peripheral countries feel that official reassurances are not adequate in the absence of an impregnable safety net, and if investors feel there is any ambiguity in the ring-fencing of all other Eurozone countries. Letting Greece exit without a certain ring fence is imprudent, so probability has to be concentrated around keeping Greece in or letting it go but having a ring fence, although the possibility that there is a policy miscalculation and  Greek exit without an adequate ring fence cannot be ignored .

The realistic answer may be that Greece should be financed because it is too small to matter. However, it is too easy to say the EUR does well if they eliminate the Greek tail risk and, by inference, the tail risk pertaining to more deserving peripherals. Convincing other countries that have complied much more seriously with austerity demands, and who face the political and social downside of austerity, that they will not be granted the same indulgence as Greece, may be more difficult. So we may end up with a euro zone that is perpetually on the brink with perpetual threats that one country or another will be tossed or leave for noncompliance on fiscal matters. This situation would seem to merit a more than modest risk premium on the currency.

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markmotive's picture

Yup. Even the mainstream economists aren't feeling this rally.

MS sees 18% market decline: http://www.planbeconomics.com/2012/08/20/morgan-stanleys-parker-sees-18-...

GetZeeGold's picture

 

 

Please Sir.....may I have more?

 

Oliver.....never before has a boy wanted more. This is uncharted territory.

http://www.youtube.com/watch?v=nlJugdk4OGc

 

 

LongSoupLine's picture

"I will gladly pay you Tuesday for a gyro today." - Wimpy the Greek

i-dog's picture

Make that "pay you next month". *BOOT* ... the can soars another 30 yards! It's nearly to the endzone.

"The troika plans to calculate the exact size of the shortfall when it returns to Athens at the beginning of next month".

Dalago's picture

Blackmail money.  Would there be a war if Greece doesn't pay?

Mentaliusanything's picture

GetZeeGOLD

This was my first thought. The Greeks must cry a little and hold the ZBowl higher if you want to soften the Germans hearts.

MORE BOY... YOU WANT MORE.

Please Sir.... sniffle Sniffle Fucken Sniffle

So Fucked it is already Past history

TIMBEEER's picture

But where is Manos? Or was it Panos? That guys "funny" remarks about the Germans and spitting into their food just before serving made me cancel my family's trip to Greece - although we are not German. Too easy to "mistaken" us Northern Europeans.

 

JackT's picture

Panos is the reason? Really?

Nassim's picture

Many years ago - probably before you were born - in 1963, I lived in Athens with my parents. We once went to a fish restaurant at Piraeus - the port of Athens. There was a big party of Germans at a neighbouring table. I saw the Greeks at another table whisper something to their boys. The boys smiled and went directly next to the table with Germans and pissed into the sea - perhaps 20 feet below. The Germans were thunderstruck and their table went silent. The boys went back to their parents and were patted on the back.

Not much has changed.

Peter Pan's picture

I guess the Deepwater Horizon Oil spill is less confronting for some people than a young child urinating in the ocean. In any case there is a possibility that the children wanted to relieve themselves and that the parents simply told them to pee in the sea.

Or is the sight of some butt naked middle aged sagging German nudists on Greek beaches more palatable?

Not much has changed? Perhaps you need to visit Detroit and other places where the changes are a lot more ugly than a couple of kids urinating in the sea.

In any case your comment was as relevant to the discussion as dandruff is to a bald guy.

Greeks will at the end of the day pay dearly for their idiotic and crooked politicians and for their desire to sell their votes in return for government jobs and contracts. But so will the world for its idiotic bankers who lent money and for idiotic Euro bueaucrats who gave subsidies with no strings or follow up.

Withdrawn Sanction's picture

Greeks will at the end of the day pay dearly for their idiotic and crooked politicians and for their desire to sell their votes in return for government jobs and contracts.

Actually, they wont.  For the same reason you cant squeeze blood out of a stone.

Peter Pan's picture

With all due respect they already are paying for their mistakes, unless you believe that 23% unemployment, halving of pensions and halving the basic wage are irrelevant. This suffering will continue for quite awhile even if they are successful in defaulting.

Ar-Pharazôn's picture

i think that what you wrote was exactly what the guy meant.

 

greece will default and they will not really pay for they mistake

Mentaliusanything's picture

Don't mention Z war. and please don't mention Repatriations unpaid for the shit they went through. At that time I was 9 years old and I would have pissed "gladly" into their Chowder

mjcOH1's picture

"Many years ago - probably before you were born - in 1963, I lived in Athens with my parents. We once went to a fish restaurant at Piraeus - the port of Athens. There was a big party of Germans at a neighbouring table. I saw the Greeks at another table whisper something to their boys. The boys smiled and went directly next to the table with Germans and pissed into the sea - perhaps 20 feet below. The Germans were thunderstruck and their table went silent. The boys went back to their parents and were patted on the back.

Not much has changed."

 

That'll teach those damn Germans not to spend their money in our country!

bank guy in Brussels's picture

Re Greece, John Ward's 'The Slog' details a current tug-of-war between EU and the Americans, and why the Greeks have another offer ... given they have lots of oil reserves offshore, and rare earth minerals, and a geo-political strategic location ...

Either the EU prints and bribes and bails to keep Greece in the euro-zone, or the Americans and Israel come in with Ben Bernanke's printed bux to make Greece the new super-duper American 'ally' ...

So, according to Ward, the Greek gov't is getting cocky with two 'offers', and Merkel has to make the decision re weakening the EU and losing the Greek oil and mineral rights to the Americans, in addition to the euro-zone contagion factors mentioned above

Interesting reporting on Greece by John Ward, as here:

http://hat4uk.wordpress.com/2012/08/16/greek-crisis-why-antonis-samaras-...

Nassim's picture

There is no oil offshore. All such talk is empty nonsense.

Ghordius's picture

John Ward is imagining imperialist thoughts into the German political process and in the eurozone in general - France excluded. Sorry, that's "typical British". The correct models are industrialist, federalist and mercantilist (insert a statist if you want to disparage it). Of the kind leading to "if we lack something, we'll exchange something we produce to get it".

There are limits to what Uncle Sam can push the eurozone to - as we are witnessing since a few years. And Greece was always Britain's project.

GetZeeGold's picture

 

 

OK.....so now we're really gonna blame America for Euroland's trouble.

 

I just want to make sure I heard that right.

 

Uncle Sam.....you rat freakin bastard!

LowProfile's picture

Actually, Uncle Sam started fuckin' with Europe when it reneged on delivering up gold for it's dollars, screwing Europe dollar holders.

So yeah, some of Euroland's troubles are definitely because of the US.

Thus the whole reason for the euro to begin with...

Ar-Pharazôn's picture

i would say that Europe screwed herself cause they should not accept countries like greece and spain in the monetary union. that was the biggest idiotic thing they made

Ghordius's picture

what is true today might change tomorrow. the sugar plantations of the Caribbean were more valuable than the entire North American continent, for a while. The territory of French Louisiana was less important than Canada and Canada less important than Martinique, at a certain point.

btw, it's Dear Oncle Sam. a bit of respect for senior family members. and then you can begin the rant

CompassionateFascist's picture

Damn. This early in a thread. And I can't think of a thing to say. 

GetZeeGold's picture

 

 

It's not a total loss......everyone gets a participation trophy.

 

If you just sit back and be quite......someone might even hand you a Nobel Prize.

 

Colonel's picture

How about the classic zombie line?

GetZeeGold's picture

 

 

ARRRGHHHUUUHHHH <-----that one?

 

Colonel's picture

The other one, it has to do with brains.

GetZeeGold's picture

 

 

I'll take what zombies like to eat for $1000 Alex.

 

Colonel's picture

In the horror movie genre, zombies are known to have a craving for this part of the human anatomy?

Mentaliusanything's picture

The Brains, lightly braised and washed down with a light Chianti.

Do i win a prize ..... I hope it is a good one

RunningMan's picture

I think your challenge stems from the news cycle being stuck on repeat for the last two years. All the old chestnuts (gold, bitchez, etc.) seem relatively stale. But you should revel in the fact that you still have the energy to read these headlines, and the financial means to remain connected. When those are gone, being early to a thread will seem... irrelevant.

How's this: Greece is as a building on fire, and like any fire, you can douse it in water in hopes of extinguishing the flames. The water does not suddenly make the building whole again, but merely quenches reaction, or failing that, prevents the flames from reaching the adjacent structures. The ECB may direct another hose or two at the fire that is Greece, but the longer it burns, the greater the risk of collapse or spread or both.

Colonel's picture

Greece on fire is a good metaphor. But it seems the idiots that be grabbed whatever container they could find to put out said fire that had "liquidity" sloshing around in it and didn't read the label and it turns out it was floor wax.

Peter Pan's picture

"Damn. This early in a thread. And I can't think of a thing to say. "

You are probably the smartest out of the lot of us. In any case this crisis could still be with us in 10 years so why rush.

Sudden Debt's picture

As soon as Draghi gets his ink and paper delivery for his blanc cheques it's covered!

If only that greek supplier dilivers the ink and paper for that German printing press...

TWSceptic's picture

Since the only solution is break up of the eurozone, they will destroy everyone in it before they do the right thing.

Mentaliusanything's picture

A Winston Churchill quote (slighty Murdered) but whats good for the USA is good for every fucking Muppet.

Greece is not the Muppet... Z Germans are

i-dog's picture

The same  applies to the States of the Union.

XtraBullish's picture

The obsession over Greece/Eurozone funding/bailout/affairs is rapidly becoming "Yesterday's Trade" - the big artillery is slowly moving in a 180-degree arc toward the bonds/currency/equity of the planet's LARGEST (broke) DEBTOR NATION - yup you got it - THE U. S. of A.

The U.K./U.S. love-in is going to be targeted by the mega-wealthy Eastern oligarch/mandarin class as illustrated by the recent China-instigated Libor Scandal. The Sino-Soviet machine does not like Washington nor London very much and they are going to begin to "flex" very shortly.

Canadian bonds, gold/silver/ag ETF's are TOMORROW's TRADE.

Quinvarius's picture

The American Federal Reserve Empire will not go down easy.  But it is going down.

Rakshas's picture

Ber-holy fuck batman-ankes plan - in technicolor.........

http://www.youtube.com/watch?v=LzV1nj3EVIs 

wesayukcom's picture

You're right on that score, however it's likely the US ain't going to take the passing of its world dominace sitting down and will start a protectionist trade war of epic proportions as Richard Duncan alludes to toward the ends.

http://rt.com/programs/capital-account/richard-duncan-deflationary-debt/

Long live the good ole U S of A !!!

lolmao500's picture

Obama should cut them a check.

Greece's debt is only $380 billion or so. That's what... not even 3 months of US deficits? No big deal.

GetZeeGold's picture

 

 

Some people pay good money for that.

 

Nachdenken's picture

"So wey may end up with a euro zone that is perpetually on the brink with perpetual threats that one country or another will be tossed or leave for noncompliance on fiscal matters."

Change may to September, and everything fits. 

 


RSloane's picture

Yes, and apparently that's quite bullish.

RSloane's picture

Greece's main source of financial growth is the German people. Until the German people decide Greece is not wothy of their toil, status quo bitchez.